1997 (11) TMI 499 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility for sales tax exemption u/s 8A of the Karnataka Sales Tax Act, 1957.
2. Interpretation of the term "goods manufactured" in the context of sales tax exemption.
3. Compliance with industrial policy and procedural requirements for claiming tax exemption.
4. Determination of whether the petitioner's industrial operations constitute "manufacturing."

Summary:

Issue 1: Eligibility for Sales Tax Exemption u/s 8A
The petitioner, a public limited company, set up a new industrial unit in Dharwad for blending and packaging tea, commencing production on May 6, 1993. The unit was certified as a "new industrial unit" and eligible for 100% sales tax exemption for five years. However, the authorities and Tribunal denied the exemption, arguing that the unit did not manufacture any commodity as per the notification dated June 21, 1991.

Issue 2: Interpretation of "Goods Manufactured"
The Tribunal's decision was based on the interpretation that blending and packaging tea did not amount to manufacturing. The Court examined whether the industrial unit's activities could be classified as "manufacturing" under the legal definition. The Court referred to various judgments, including Ujagar Prints v. Union of India, which held that processes resulting in a commercially new and distinct commodity could be considered manufacturing.

Issue 3: Compliance with Industrial Policy and Procedural Requirements
The Court noted that the industrial policy aimed at granting incentives, including sales tax exemptions, to new industrial units. The eligibility certificate issued by the competent authority was produced at the time of assessment, but the exemption was still denied. The Court found no change in the industrial policy between the issuance of the first and second notifications, indicating that the policy intended to grant exemptions for the output of new industrial units.

Issue 4: Determination of Manufacturing
The Court reviewed the petitioner's affidavit detailing the sophisticated blending and packaging processes, which added value to the original garden teas. The Court concluded that these processes resulted in a commercially distinct product, meeting the criteria for manufacturing. The Court emphasized that the term "goods manufactured" in the second notification should be understood as "the output" or "goods produced."

Conclusion:
The Court held that the petitioner's industrial unit was entitled to the sales tax exemption as per the notifications. The Tribunal's order was set aside, and the revision petition was allowed. The Court clarified that the term "goods manufactured" should be interpreted in line with the industrial policy's objective, ensuring that the petitioner's blended and packaged tea qualified for the exemption.